Another strong year for construction sector performance is projected for 2019, but factors such as inflation, labor shortages, increasing material prices, and tariffs could put a brake on growth in the months ahead, according to a 2019 economic outlook published on December 4 by Associated Builders and Contractors (ABC).
In an article in Construction Executive magazine, ABC chief economist Anirban Basu observed that current levels of job growth, reports of large backlogs, and healthy levels of infrastructure investment are all good news for the construction industry. He warned, however, that historically low unemployment has created a construction workforce shortage that is leading to increased compensation costs.
“U.S. economic performance has been brilliant of late,” Basu said. “Sure, there has been a considerable volume of negativity regarding the propriety of tariffs, shifting immigration policy, etc., but...domestic economic performance is solid.”
He added that this strong performance is especially evident in the labor market, with construction unemployment reaching a low of 3.6% in October. Basu cautioned, however, that while the U.S. economy is thriving, rising interest rates and materials prices could have long-term effects on the U.S. construction market.
At the same time, Basu stressed that a recession is unlikely in 2019, even with recent financial market volatility. He noted that indicators such as the Conference Board’s Leading Economic Index have continued to move higher, suggesting that the current momentum will continue for at least two to three more quarters. Basu also observed that ABC’s Construction Backlog Indicator reported a record backlog of 9.9 months in the second quarter of 2018.
Basu pointed out, however, that recessions often follow within two years of peak confidence. “The average contractor is likely to be quite busy in 2019, but beyond that, the outlook is quite murky,” he said.